Hurricane Sandy Is Bullish for the Economy

In an economy not constrained by resources, limited crises are always bullish to the economy and the stock market.

Bo Peng

NEW YORK (TheStreet) -- The usual thinking is that human genes must have been loaded with an aversion to crisis. But what's often not discussed is that we actually get excited about crisis.

We didn't get to where we are today by sitting on the couch and gulping beer; we survived countless crises big and small, collectively and individually, over the evolutionary scale and in everyday life.

Look at the media coverage of hurricane Sandy. You could see the sparkles in the eyes of politicians and newscasters when they talked gravely about it, nonstop.

People are excited about this. Despite the tragic loss of life and property that will happen in some areas, let's face it: Deep in our hearts, we don't believe whatever damage we incur will really matter.

There will be insurance. There will be emergency crews. There will be neighbors and community help. There will be government subsidies. It is, viewed in a cold-hearted but accurate way, just a big, collective roller-coaster ride. People are genuinely scared. People are also genuinely excited, if only secretly.

The meaning of crisis has gone through tremendous inflation in the developed world. Whereas it used to mean life-or-death or at least grave hardship, nowadays in the developed world it means a manageable inconvenience for most people involved. This must be why disaster movies are popular in the developed world but not so popular in the developing world; out there it's too real for comfort.

In an economy not constrained by resources, such as that of the U.S., limited crisis means only two things at the statistical level: stimulus to individual and government spending; and stimulus to jobs.

Insurance companies will suffer in the short term, of course. But even they likely will benefit in the longer term as crises make people value the products they sell even more. Furthermore, since Sandy has been so hyped for so long, if it does not live up to the hype, even insurance companies will get a boost.

In other words, in the economic sense, destruction is constructive before reaching the resource-constraint boundary. It is no different from a boy's old, beat-up toy car finally getting totaled; as long as his parents can buy him a new one without meaningful impact to the family's lifestyle, it's a good thing, again not considering the emotional/sentimental aspect.

At some point we will reach the resource-constraint boundary. Until then, let's take it for what it is as the heartless economic beasts that we are supposed to be in the market: It's bullish.

Gold, as represented by SPDR Gold Shares (:GLD) likely will go up since QE3 has changed gold into a proxy for the U.S. economy.

Gold used to be a hedge after the 2008 crisis. If the U.S. economy was bad, the Fed was expected to print money in one way or another, and gold was expected to rise.

But QE3 changed this dynamic. Because QE3 is committed to infinity and a minimum monthly amount, continued bad economic data would cast doubt on the efficacy of QE3 while good data would imply higher inflation expectations.

Over the intermediate term, beyond the hurricane impact of days to weeks, the economic picture is much murkier. Several sector leaders' earnings thus far have been bad.

There is no sign of QE3 having any impact in the economy beside higher inflation expectations, although admittedly it may be too soon to judge.

The fiscal cliff is used as a big stick by both sides as well as the media to grab attention, although it would be a monumental joke if it actually happens. The eurozone, while improving in some aspects, is never far from the next flare-up.

China is still not sure what to do with the myriad of economic and social issues amid its continuing transition of power. Over this time horizon, the QE3/OMT high has worn off; depression will likely set in during the morning after. The downside risk has increased until either the supposed fiscal cliff comes to its resolution or we begin to see signs that the economy is improving.

At the time of publication, Bo Peng was long gold.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.